Wednesday, 6 May 2015

TweetAmongst the
more useful things that I’ve learned over the years are that that which is
obvious isn’t necessarily true, and that that which is true isn’t necessarily
obvious.Assuming the obvious to be true
is a common mistake, but in this election the failure to challenge the ‘truth’
of the obvious has allowed the Tories to frame the debate and win the argument
on economic narratives. To describe that as disappointing is an understatement.

When it comes
to the budget deficit, all three of the main UK parties are committed to the
view that it needs to be eliminated; any disagreement is solely about the
method by which that is achieved and the timing.Even the self-styled ‘anti-austerity’ parties,
despite calling for an increase in borrowing to fund infrastructure in the
short term, seem to have bought into the ‘truth’ of the ‘obvious’ need to eliminate
the deficit.In her piece for the Western Mail on Saturday,
Plaid’s leader said “The Party of Wales
wants to see the fiscal deficit eliminated”, going on to argue that it just
doesn’t have to be done so quickly.

Deficit
elimination as a necessity is a narrative which the Tories, aided by their
friends in the media, have set, and which has gone unchallenged.It is, after all ‘obvious’ that a government
cannot run a deficit forever.But is it
true?

As the chart on
this page shows, deficits have been the norm
over a very lengthy period.Where there
have been surpluses, they’ve been short-lived and very much smaller than the deficits.The simple conclusion is that countries are
not like households; the budget really doesn’t have to be balanced, even over
the long term.Governments really can
run deficits more or less indefinitely if they choose, however counter-intuitive
that may seem.And because it’s so
counter-intuitive, it’s a point which simply hasn’t been made effectively during
the election campaign.

The extent to
which it’s possible to run a deficit indefinitely depends on a number of
factors, most notable perhaps inflation and the level of economic growth,
although it’s important to remember the importance of international comparisons as well – relative security of funds is more relevant than absolute security.That’s why a more useful measure than the
existence of a deficit per se is the relationship between that deficit and the
overall size of the economy over time.

If they’d all
talked about ‘reducing’ the deficit, rather than eliminating it, I’d be a good
deal less critical, because there probably is an upper limit to the size of the
deficit.However, I don’t know what that
limit is, even if I suspect that the UK got closer to it than was wise.But here’s the thing – neither does anyone else know what that limit is.

For sure, any
number of different economists will tell you with apparent certitude what the
limit is, and justify setting it at that level by reference to all sorts of
economic theories based on what’s happened in the past.But none of them can be, whatever they may
say, certain.In effect, governments can
go on borrowing until people won’t lend them money any more – not a sensible
thing to do, but the only way anyone will ever know what the limit is.Everything else said about the deficit is
simply opinion, not fact.

One of the few
things which are certain is that the existence of a deficit per se is not a
problem – which is precisely the opposite of what all the politicians are
telling us.It’s clear enough why the
Tories are telling us the reverse of the truth.Using the ‘obvious’ comparisons with household debt or ‘maxing out the
credit card’ provides them with the cover they need for an ideologically based
desire to shrink the state and further redistribute power and wealth from the
many to the few.What’s a good deal less
clear is why the rest of them have allowed the Tories to get away with this unchallenged.